Euro zone ministers say EU fiscal rules flexible, no need to change

LUXEMBOURG, June 19 The European Union fiscal
rules can accommodate efforts to stimulate economic growth, so
there is no need to change them, EU finance ministers and
policymakers said on Thursday.

The ministers laid out their positions as they gathered for
their monthly meeting, addressing a subject Italy had brought to
the fore when it said earlier this year it wanted EU policies to
better support growth.

"The existing rules provide enough flexibility," German
Finance Minister Wolfgang Schaeuble said on entering the
meeting. "We don't need to change the rules, we have to stick to
them," he said. "Solid financing and structural reforms are two
necessary conditions for sustainable growth."

The fiscal rules, called the Stability and Growth Pact,
limit government deficits to 3 percent of gross domestic product
and public debt to 60 percent of GDP. The pact also spells out
how governments have to put their finances in order if they
exceed the limits and when they can be granted leeway.

Italy takes over the rotating six-month presidency of the
European Union in July and will set its agenda during that time.
It had said earlier it wanted to take a closer look at the pact,
starting a discussion on whether the rules should be changed.

But euro zone officials appeared to agree unanimously on
Thursday that no change was necessary.

EU Economic and Monetary Affairs Commissioner Olli Rehn said
the rules had "a significant degree of smart flexibility built
in." Other finance ministers backed that view.

"Spain is in favour of not continually changing the rules,"
Spanish Economy Minister Luis de Guindos told reporters. "It is
fundamental that there are stable, predictable and sensible
rules and I think that right now, that's what we have."

The existing rules allow for slower budget consolidation if
a country makes public investments or undertakes structural
reforms. But many policy-makers worry that granting more time
for deficit cuts may not bring about the desired effects.

Their concerns were sparked by France, which in exchange for
reform promises was given two extra years, until the end of
2015, to bring its budget deficit below the EU limit of 3
percent of GDP. The reforms did not occur and France will
struggle to meet even the extended deadline.

EU policy-makers are therefore thinking of reversing the
order: first a country implements reforms, then the EU grants it
more time on deficit reduction.

French Finance Minister Michel Sapin told reporters the
country was not pleading for a change of the rules or more time
to meet the targets. But he hinted that more flexibility could
be needed, within the current rules.

"We are not asking for the rules to be changed," Sapin said.
"But we need to find the right rhythm for each of the member
states, especially those facing more difficulties, so that the
return to a good budgetary situation, to an orderly decrease of
debt and the reduction of deficit take place in a way that is
compatible with growth and the return to growth," he said.

The issue of slower consolidation in exchange for reforms
has become a bargaining chip in talks on who should become the
new head of the EU executive arm, the European Commission. Italy
is withholding its support for leading candidate Jean-Claude
Juncker, seeking a more pro-growth interpretation of the rules.

There seems to be little opposition to using the leeway in
EU budget rules even from Germany, long the most ardent defender
of budget austerity. Earlier this week, German Deputy Chancellor
Sigmar Gabriel suggested euro zone countries that carry out
reforms should get more time to meet their fiscal goals.

He noted that Germany - now the growth engine of the euro
zone - took time to meet deficit targets when it was carrying
out reforms of its own. But the German government has since made
clear that Gabriel did not imply a need to change the rules.
(Additional reporting by Martin Santa and Tom Koerkemeier;
writing by Annika Breidthardt; Editing by Larry King)

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